Trump’s 10% interest rate cap explained: What credit cardholders need to know now

The US President Donald Trump said he wants credit card interest rates capped at 10% for one year, according to a Jan. 9 Truth Social post. Trump said credit card companies must follow this 10% cap by Jan. 20, or they will be “in violation of the law,” he warned. This idea is not new, because Trump talked about a 10% credit card rate cap during his presidential campaign.

In 2024, US senators also introduced a bipartisan bill that proposed a 10% rate cap for five years, showing past political interest in the idea, as reported by Yahoo Finance. Right now, there is no clear law or rule explaining how this rate cap would be enforced without Congress passing legislation.

On Tuesday, JPMorgan Chase CFO Jeremy Barnum warned the cap could lead to less credit being offered, which he said would be bad for consumers and the economy. Experts say even though the idea sounds helpful, it could have long-term effects for cardholders.

Why credit card interest rates are so high

The average credit card interest rate today is 22.30% for people who carry a balance. In 2016, the average credit card interest rate was much lower at 13.35%, as stated by Yahoo Finance. One major reason rates rose is higher credit card margins, which is the gap between card APRs and the prime rate.

A 2024 CFPB analysis found rising margins caused about half of the increase in credit card rates over the past decade. Higher interest rates make revolving balances more profitable for credit card companies. Credit card rates also depend on your credit score, because most cards have a range of APRs. People with excellent credit usually get lower rates, while people with weaker credit can get very high rates.

What a 10% cap could mean for your debt

About 46% of American households have credit card debt and could benefit from lower rates. A 10% cap could help people pay balances faster, because more money would go to the principal instead of interest. The proposed cap would last only one year, and what happens after that is unclear.

After the cap ends, rates could rise again based on risk and credit score, experts say. “After a temporary one-year cap, rates will rebound,” said Yaël Ossowski, deputy director at the Consumer Choice Center, as noted by Yahoo Finance.

The average credit card debt in the US is about $6,000. At a 22% APR, you would need to pay $561 per month to clear $6,000 in one year, as cited by Yahoo Finance. At a 10% APR, you would need to pay $527 per month to clear the same debt in one year. That lower rate could save over $400 in interest in just one year.

If you only make minimum payments

Many cardholders cannot afford $500+ monthly payments. At 22% interest, minimum payments can take nearly 25 years to pay off $6,000. Over that time, you would pay about $10,000 in interest. If the rate drops to 10% for one year, your balance could fall to $5,318 during that time.

Even if the rate returns to 22% later, total interest could drop to about $9,150. That one year of relief could save almost $1,000 long term. Still, minimum payments remain a slow and expensive way to pay off debt.

Downsides of a 10% interest cap

Experts warn a rate cap could make it harder to get a credit card. Banks may tighten lending rules if they cannot charge higher rates for risky borrowers. Banking groups said a 10% cap would reduce credit availability for millions of Americans, as per the report by Yahoo Finance. America’s Credit Unions said a 10% cap would make credit unattainable for many working Americans.

Some people could turn to riskier options like payday loans or buy now, pay later. Payday loans often have much higher interest rates and fewer protections. “When consumers are locked out, they find riskier credit,” said Yaël Ossowski.

Credit card rewards could also suffer

Credit cards often offer cash back and travel rewards funded partly by interest income. A rate cap could lead banks to cut rewards or raise annual fees. “Rewards programs depend in part on interest fees,” said Tiffany Funk, co-founder of point.me. Funk said banks may reduce points value or benefits if revenue drops. She advised cardholders to review rewards cards every year. Funk also said it is smart to use and redeem rewards regularly.

What you can do right now

You do not need to wait for a rate cap to lower your interest. People with good credit can use a 0% APR balance transfer card. Many balance transfer cards offer 12 to 21 months of 0% interest. A balance transfer can be better than a 10% cap for paying down debt.

On a $6,000 balance, a 0% APR for 18 months could lower payments to $343 per month, even after a fee, as mentioned in the report by Yahoo Finance. This option can help cardholders save more money and pay debt faster. Experts say understanding your options is key as the 10% cap remains uncertain.

FAQs

Q1. What is Trump’s 10% credit card interest rate cap?

It is a proposal by President Trump to limit credit card interest rates to 10% for one year to reduce borrowing costs for consumers.

Q2. Will a 10% interest rate cap help credit card users?

It may lower interest costs short term, but experts warn it could reduce access to credit and card rewards.